A note on the specification of the fisher equation under inflation uncertainty |
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Authors: | Mario I Blejer Benjamin Eden |
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Institution: | Hebrew University, Jerusalem, Israel;Falk Institute, Jerusalem, Israel |
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Abstract: | The effect of uncertainty on the relationship between the nominal interest rate and the expected rate of inflation, the Fisher equation, is examined both theoretically and empirically. It is found that the coefficient of the expected rate of inflation is significantly below unity. Variable rates of inflation tend to effect the nominal rate of interest positively, but real yields are apparently effected only by expected inflation, but not its variance. |
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